Living4Dividends'  Instablog

To secure healthy dividend yields and sidestep the ailing U.S. dollar, look to European aristocracy. I refer not to Windsors and Borbóns but to Nestle and Novartis, and to the 38 other members of the S&P Europe 350 Dividend Aristocrats.

Index members are decided at the start of each year by selecting those members of S&P’s Europe 350 index that have increased their dividends annually for at least a decade. If more than 40 companies turn up, S&P chooses the 40 with the highest dividend yields. If fewer than 40 are found, it eases the requirement to seven years of rising dividends.

This year through Friday, the 40 Euro-Dividend Aristocrats have returned 36%, besting the broader Europe 350 by 12 percentage points and America’s Dividend Aristocrats by 16 percentage points. Below are highlighted three Euro-Dividend Aristocrats. A full list may be found here.

To the short-sighted, the dollar’s decline over the past seven months is a panic. An index that tracks its value against those of six key currencies -- including the yen, euro and British pound -- has fallen from 89 to 75. To those with a slightly longer view, the decline is merely a return from a panic. The index jumped from 71 to 89 between March 2008 and March 2009, as financial markets deteriorated and the world hoarded U.S. Treasury bonds.

An even longer view shows the dollar is indeed in a humble state, if not quite a shattered one. The dollar index is based on a starting value of 100 and a starting point of March 1973, when the world’s major trading partners permitted their currencies to float freely against each other. (For index values prior to the euro’s introduction in 1999, predecessor currencies like the French franc, Dutch guilder and German mark are used.) Thus, the buck has been only slightly weaker and a lot stronger.

Last month I argued that the U.S. dollar now looks undervalued next to rival currencies, based on comparisons of local purchasing power, and that America is in no worse financial shape than its rich peers. If the dollar is to remain cheap for a while, though, expect U.S. firms that sell overseas to benefit, along with their stockholders.